After a disappointing first-quarter same-store sales figure in April (2% compared to 5% in the year earlier period) Ross Stores came back with a strong 4% comp in the July quarter. While the second-quarter number was flat with last year, it was enough to get the stock to rally into the summer. Revenue jumped 7.2%, to $3.18 billion.
That second-quarter 4% comp drove gross margins up 61 basis points and operating margins rose 51 basis points. The strong financial performance found its way to the bottom line and earnings grew 12.2%, to 71 cents per share.
Thursday, Ross Stores reported third-quarter fiscal 2016 results. The company reported earnings of $0.63 per share, 6 cents ahead of the consensus estimate. Revenue rose 10.9%, to $3.09 billion. Management sees fourth-quarter earnings between 72 cents and 75 cents per share. For the fourth quarter, the company expects a 1% to 2% increase in same-store sales.
Same-store sales rose 7%. Just like last quarter, the better-than-expected earnings were driven by the 7% comp and higher gross margins. Merchandise margins rose 50 basis points. The company did not enjoy the full benefit of the 7% comp, since SG&A rose 10.6% due to higher wages and one-time expenses.
Shoes were a particularly strong seller and the women's business has turned the corner. Management is working hard to turn around the accessories business, while keeping a tight leash on inventories.
Wall Street is modeling fourth-quarter earnings of $0.75 on $3.4 billion in revenue. Analysts believe management's same-store sales guidance of 1% to 2% is overly conservative.
Ross should be able to end fiscal 2016 with sales of $12.7 billion and earnings of $2.80 per share. Next year, the company should be able to grow revenue about 5%, to $13.4 billion. Fiscal 2017 earnings would be in the $3.00 to $3.05 range.
Ross is delivering the best same-store sales numbers in the retail industry, and the shares should trade at a premium. If I'm right, the stock should be able to support a 25 multiple or trade up as high as $75 per share. Ross Stores is dressed for success.